In today’s financial markets, most financial instruments can be bought and sold on exchanges or over-the-counter. Common instruments include stocks, bonds, indexes, foreign exchange (Forex), commodities and even digital currencies.
Unlike investing, where investors aim to make money over the long-term by buying and holding a portfolio that they believe would increase in value over time, traders aim to make profits in the short-term by taking advantage of the always changing prices of financial assets.
If you are new to trading and want to learn more, this guide is meant for you. You can read the articles in the links below in sequence, as we have designed it to educate readers in a step-by-step manner. However, if there are specific areas about trading that you wish to find out more, feel free to skip to the parts that would be most relevant.
# 1 The Use of Leverage
One important element that typifies trading is that leverage is used. Leverage refers to the use of borrowed capital in order to increase a trader’s exposure to his trades.
The rationale behind using leverage when it comes to short-term trading is that prices of assets do not usually move by much, even when a trader correctly predicts its price movement. Leverage allows traders to take up a much bigger position with the aim of earning a higher return than what an investor would be able to earn given the original capital put in.
Leverage is a double-edged sword. On one hand, traders need to utilise it to increase their exposure and profit. At the same time, leverage could potentially translate into bigger losses as well.
Here are some articles that you can read to better understand how leverage works.
This is the reason Why Some People Trade – Rather Than Invest
# 2 Types of Instruments You Can Trade
There are many types of instruments that you can trade. Most commonly, the first thing people think about is Forex trading, where traders buy and sell currency. However, Forex trading is not the only instrument that you can trade. Traders can also trade indices, commodities and even digital currencies.
Here are some articles that you can read that explains the different types of instruments that one can trade.
Trading Forex: What You Need To Know Before You Start Trading Forex
Commodity Trading: What Is Commodity Trading And How Does It Work?
Trading Bitcoin: Here are 10 Things You First Need To Know Before Starting
# 3 Opening A Trading Account
Before you can start trading, you need to open a trading account. There are countless platform providers that you can choose from across the world.
From the get-go, most providers appear homogenous, offering very similar services. However, once you take a closer look at what they offer, you will start to notice the differences. You can read about some of the factors to consider when deciding where to open your first trading account.
# 4 Continuous Learning
Expecting to learn everything you need to know from just books and articles is simply not possible. Over time, you will make mistakes, learn from them, meet new people and learn new strategies that you can implement in your trades. You should always proactively improve your strategy, instead of standing still.
Here are some ways you can learn more about trading.
Learning From Others: Three Traders Share With Us First-Time Mistakes They Made, And What They Learned From It